Does Washington need a “climate change” for manufacturers?

Manufacturing’s share of Washington’s workforce has dropped since 2009, despite the overall number of jobs increasing. Possible solutions to address this that were debated during a November 13 work session of the Senate Ways & Means Committee include greater relationships between manufacturers and high school students interested in the trades, along with potential changes to the state’s gross receipts (B&O) manufacturing tax. Photo: Jelson25

Washington manufacturers currently make up roughly nine percent of the state’s workforce. This represents a three percent drop since 2000, according to a new report by the Economic Revenue Forecast Council (ERFC).

How to improve that was the discussion of a November 13 work session for the Senate Ways & Means Committee. While some state lawmakers want to strengthen the connection between high schools and manufacturers to better transition them into those jobs, others may use the situation to call for altering the gross receipts tax (B&O) paid by manufacturers.

Providing greater context for the conversation was an economic climate study by ERFC which found Washington had the fourth best business competitive climate in the nation, using the average score of 48 indicators such as property crime, venture capital funding and air quality. However, the rankings can hide the state’s progress or lack thereof without closer examination, as it compares Washington to other states, not to prior metrics.

In 2015, Washington’s 6,5000 manufacturers provided 286,300 jobs, and a year prior generated $58.22 billion in total output. Although much of that is driven by the state’s aerospace industry, other manufacturers include electronics, food and petroleum. According to the National Association of Manufacturers, the industry provides a $1.81 economic return per dollar invested nationally – the highest multiplier effect of any sector.

ERFC Executive Director Steve Lerch told lawmakers that although the state has lost 11,000 aerospace jobs since 2009 and the industry’s share of the overall labor force has shrunk, the overall number of manufacturing jobs in the state have increased.

However, some such as Sen. Steve Conway (D-29) suggest that this isn’t a good sign. He told Lerch that “the interesting thing is that Washington has been gaining in population…so it would be of interest to see how other states with a similar kind of pattern have been able to push greater manufacturing in their economy and why.”

One reason could be the difficulty for certain manufacturers to attract qualified applicants. Randy Durham runs Polyform US, a Kent-based buoy manufacturing business. He told lawmakers “we have to compete with the wages. Guess who my main competitors are in Kent? Boeing and Amazon.”

He added that they have had the opportunity to hire, but there isn’t anyone to fill the jobs.

He also told panel members that “you have to understand, unlike other people…we can’t just pass on your tax increases. Our rates are set by world competition…so when people say that I can just pass on my costs, it is not true.”

Another problem facing the industry is a negative attitude toward those jobs that deters high school students from considering them, says ‎Manufacturing Industrial Council Executive Director Dave Gerig. He told the committee that “I think our society has stopped respecting work. What I mean by that is our high schools are dedicated to providing college education. We are not teaching that trades are honorable. So perhaps we could have a society recognize that the people who work for a living are honorable too, and they can raise their families on a good wage.”

Conway suggested replicating in other places education projects such as one in his district between Toray Composite and the Pierce County Skill Center that aims to better transition graduates to manufacturing jobs.

“My question is, how do we build that kind of a model where we’re actually working more directly with our K-12 system?” he said. “It seems like we haven’t built that relationship.”

Gering pointed to the Core Plus network, which allows students to learn these trade skills. “There are a lot of communities that are doing it. We kind of know what’s replicable. We know what works. These kids do have pride in what they’re doing, to be able to come out of high school with a 40-hour-a-week job and have overtime. You can’t avoid that grassroots hard work.”

“We just got to keep building it out,” he said.

However, a student’s desire to learn these skills can often conflict with educational requirements such as statewide assessments. It was an issue raised by Conway, as well as Sen. Barbara Bailey.

“We’ve had a very, very hard time balancing those kinds of programs with all the education requirements,” she said. “I would really like to see some honest to goodness work identify how we can make this work better. This is where I see we’ve let our young people down.”

Another option decision-makers might consider is exempting manufactured goods from the B&O tax if they’re exported. It’s a policy Ohio and Nevada adopted when they enacted their own B&O tax, which applies only to goods delivered to in-state customers, according to Washington Research Council Director and Senior Economist Kriss Sjoblom.

He told the committee that “they made decisions that benefit manufacturers that export from the state is the key thing. The manufacturer that doesn’t export outside the state does not gain from this.”

Sen. John Braun (R-20) observed that those states “all consciously made decisions that benefit their manufacturers largely at the expense of manufacturers outside their states.”

Lawmakers could also try to revive a proposal to reduce the B&O manufacturing tax for all businesses in the state to the same rate currently paid by Boeing. It was part of the compromise for a 2017-19 operating budget, but was later vetoed by Governor Jay Inslee.